Key Highlights

A recent survey titled “Small Business Problems and Priorities” from the National Federation of Independent Businesses has revealed that healthcare insurance costs is a top concern for small business owners. Here are 3 tips for employers who are looking to control healthcare costs for their business and employees:

  1. Offer Health Savings Accounts (HSAs): HSA are a great option that allows employees to save pre-tax money and spend it on eligible healthcare expenses. HSA’s grow tax free and offer long term benefits, making them a great tool to employees and employers.
  2. Offer Health Reimbursement Accounts (HRAs): Another cost-controlling strategy for your business is setting up HRAs for your employees. HRAs allow employers to contribute tax-free funds for employees to purchase their own health insurance. This allows them to have the freedom of choice and greater control over their healthcare spending. In addition, you get a tax deduction for the money that you contribute to their HRAs.
  3. Consider Captive Insurance Programs: When you join a captive program, you are joining along with hundreds, maybe even thousands, of other companies. You’re all sharing the cost and liabilities together, so costs tend to be more controlled. You’re able to combine your experience and your costs with other companies of your industry, size or risk.

Transcript

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Gene (00:01):

Hey everybody, it’s Gene Marks and welcome to this week’s episode of The Hartford’s Small Biz Ahead Podcast. This is where we take some, um, you know, give you some advice and tips in help in running your business. This podcast is actually going to be part one of two parts that I want to share with you, and they both have to do with controlling your costs. Why? Because the National Federation of Independent Businesses has recently come out with a survey, the Small Business Problems and Priorities, which it has been doing for the past 11 years. It listed after surveying about 3,000 small businesses. It listed all of the biggest issues that are facing small businesses and, and there’s the usual suspects: interest rates, finding employees, taxes, economic government uncertainty, those kinds of things. But there’s really two top issues that are facing the survey respondents and most businesses this year.

Gene (00:57):

Number one is the cost of health insurance, and number two is the cost of supplies and inventories. And because both of these, and I have thoughts on both of these, I have advice on both of these topics, but because they’re pretty big topics, I’m going to split this podcast out into two parts. This part, I’m going to talk about the cost of health insurance and how some thoughts on controlling those costs. Part two, will be some thoughts on inventory and controlling the costs of your inventory in your business. Uh, because there’s the ways to do that as well. Both are big topics. So let’s talk about health insurance, shall we? I mean, health insurance this year is projected to increase anywhere from eight to 10%. That’s on top of another eight to 10% increase from last year.

Gene (01:47):

The cost of health insurance still continues to be a big, big issue for most employers, and it is a top concern for employers because they want to provide this benefit. Health insurance is one of the top three benefits that are requested by individuals and prospective employees. And so employers have to provide an answer to that, and it’s getting tougher and tougher and tougher to do just that. So, what do you do? How do you provide good health insurance to your employees, or at least good options while making it affordable for your business, that it’s something that you can still absorb. And I’ve got some suggestions for you that I thought that you should. No, I’ve actually got four suggestions for you.

Gene (02:35):

So, let’s take it from the top. The first is this: If you don’t already offer health savings accounts in your business, you absolutely should be doing that. HSAs get tied to your high deductible health insurance plans. Your employees can contribute to it. You can contribute to it. There’s limits to the contributions which you can look up, but basically, employees put money away pre-tax, so it lowers their taxable income. And then they can use the money as long as it’s for eligible healthcare expenses. Now, it can’t be used to pay for their premiums, but it can be used for out-of-pocket expenses, certain pharmaceuticals, things like glasses, acupuncture. There’s a whole list of different things that HSA money can be used for. Very easy to set up, very easy to administer or administer. You can have firms do that for you, and it’s a huge employee benefit because it’s giving them, say their tax rate is 20%.

Gene (03:34):

It’s basically giving them a 20% discount on their healthcare expenses if they use their HSA money. The other reason why people love HSAs is because they’re portable. So if they leave your company, the money can come with them. So, people like that. Also, there’s no use it or lose it. You don’t have to, whatever’s left over at the end of the year stays with the employee. It can grow forever. Like there’s no limits to taking it out. There’s no requirements to take it out. Like with a 401k plan and like a 401k plan, HSA money can be invested in different funds and whatever gains that are realized from HSA are not taxable as well. So it’s a really powerful tax beneficial strategy. Make sure your company as an HSA and that your employees know about it and they’re maximizing the use of it.

Gene (04:23):

So that’s number one of four. Number two, to control your healthcare expenses, consider setting up an HRA, a healthcare reimbursement account. HRAs have become extremely popular over the past few years. And here’s the reason why: If you set up an HRA, and you can do this with your existing health plans or in lieu of your existing health plans, you basically are setting up accounts for your employees where you put money into the HRA, and then the employees take that money, and they use it to buy their own healthcare. So, they don’t get taxed on the money that you contribute to their HRA, and you get a tax deduction for the money that you contribute to their HRA. It’s basically a reimbursement of their costs when they get their own healthcare. So, they can go out on the healthcare exchanges and maybe get better rates and offers to them, and then use the HRA money to pay for that healthcare.

Gene (05:21):

Or you could provide a list of approved healthcare benefits administrators or consultants in your local area. And then your employees can use them in whatever plans that they choose for themselves. Um, your, your money pays for that. Now, you’re still paying the money in, but here’s where it saves you on costs. First of all, it gets rid of your administrative costs. Number two is it gets rid of the cost of negotiating every year for your health insurance and losing, because we all know that no matter what we negotiate, it’s still gonna be an eight to 10% increase. It gets you out of potential liabilities from HIPAA disclosures. I mean, sometimes when you’re dealing with health insurance costs, you get to know a little too much about your employees health histories, and that’s a potential issue as well.

Gene (06:10):

Finally, it gives you a lot of control over your healthcare costs. I just mentioned that healthcare costs are going up eight to 10% this year. Well, you don’t have to increase your HRA contributions by that much. You can decide what you’re going to contribute that year. It’s completely up to you. So it gives you more control over how you’re spending your money. So HRA health reimbursement accounts very, very popular. Something you should consider to help you control your healthcare costs this year. So that’s number two out of four. Number three: captive insurance programs. I want you to look and Google in your state for captive insurance programs. A captive insurance program is basically a self-insured program. It was historically to the benefit of larger companies to take advantage of this. But it is now trickling down to small and midsize companies. When you join a captive, you are joining along with hundreds, maybe even thousands of other companies that also members of this captive, you guys are sharing.

Gene (07:13):

Everybody’s sharing the cost together and you’re sharing the liabilities together as well. So obviously there is this potential that there could be liabilities that are not from your company, but you’re paying a piece of, because you’re part of a captive. But when a captive program is managed the right way by the right people, and the people running these captive programs are generally healthcare industry experts, they tend to keep insurance rates really under control. They’ve got way more of a handle on what health insurance is. You’re able to pull your experience and your cost with other companies of your industry or size or risks. So therefore, you could really take advantage of any type of healthcare benefits that might be coming to you because you’re in a specific type of captive.

Gene (07:59):

So I strongly recommend that you investigate Google captive insurance and, and your state and investigate captive insurance programs. I think you’ll be pleasantly surprised at what some of the advantages are. So we’ve talked about setting up an HSA health savings account. We’ve talked about setting up an HRA with, this is a health reimbursement account. We’ve talked about investigating captive insurance programs. And the final little piece of advice I have for you has to do with taxes. You know, when you give your raise to your employees and raises this year will be anywhere from three to 5% you may want to consider instead of giving them compensation increases to contribute more to their healthcare plans. Why? Because when you give an employee a raise in salary, they get fully taxed on that. And by the way, you’re paying employer taxes on it as well. But the more you contribute to their healthcare plan, they don’t get taxed on that contribution and you get a deduction for it.

Gene (08:55):

So think about that. You can contribute to a healthcare plan. It’s the same type of compensation. The employee gets more in their net paycheck, obviously, because you’re contributing more to their healthcare. And everybody, both you and your employees are saving on taxes as well. So that kind of configures into your overall affordability of your healthcare. So let’s recap. Okay. Healthcare costs going up eight to 10% this year, according to the NFIB. It is the number one concern of small businesses, the 3000 small businesses they survey. So consider, make sure you have health savings accounts for your high deductible plans. Make sure you consider getting an HRA health reimbursement account. Investigate captive insurance programs. And when you give your employees a raise this year, consider giving some of it, or all of it, a portion of their healthcare reimbursement. Because there are tax advantages for doing that.

Gene (09:46):

That is the number one issue facing businesses. The number two issue facing businesses is supplies and inventory costs and how they’ve gone up and how to control them. We’re going to dig into that as well. That’s going to be on part two of this podcast, which you will be getting soon. And I think it will help you in managing, you know, overall cost of your business. So, uh, without further ado, thank you very much for listening to part one. My name is Gene Marks. This has been The Hartford’s Small Biz Ahead Podcast. If you need any other tips or advice or help in running your business, please visit us smallbizahead.com. Thanks. We will see you again shortly. Take care.

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